Digital music sales tripled in 2005

Online sales of digital music rose 200 percent last year. Is this a …

According to the International Federation of the Phonographic Industry (IFPI), legal sales of digital music increased by over 200 percent in 2005 over the year before. Sales were split between mobile phone ring tones, which consisted of 40 percent of the total, and online music downloading services such as Apple's iTunes Music Store (iTMS), which took the other 60 percent.

Digital music sales represent six percent of the total recording industry's revenues, which is up from about two percent in 2004 and only a fraction of a percent in 2003. This represents significant growth, although clearly sales of traditional media (such as CDs) continue to provide the lion's share of the recording's industry's revenue.

IFPI Chairman and CEO John Kennedy said: "Two years ago, few could have predicted the extraordinary developments we are seeing in the digital music business today. And there will be further significant growth in 2006 as the digital music market continues to take shape. Already in the UK and Germany—two of the biggest digital markets worldwide—legal buyers from sites like iTunes, Musicload and MSN actually exceed illegal file-swappers. We expect this trend to spread as new and pioneering legal music distribution channels open up to consumers.

One wonders exactly how the IFPI is able to accurately count the number of illegal file-swappers, but regardless, these figures do represent a significant new revenue stream for the music industry. Worldwide, there are now over 335 legitimate online music download services, up from 230 in 2004 and 50 two years ago. In Europe alone the number of services reached 200 in 2005, up from 150 in 2004.

The IFPI report claims that 420 million single tracks were downloaded in 2005 worldwide. If these numbers are to be believed, this puts Apple's iTMS far above any of its competitors in terms of market share. Apple claimed to have sold the 250 millionth iTMS song in January 2005 and passed the 500 million mark in July, which would put their share of the global download market in the high 90 percent range. These figures do not include music subscription services, such as Real Networks' Rhapsody and the new Napster, which increased their subscriber base from 1.5 million to 2.8 million in 2005.

According to the report, the number of illegal music files available for download over P2P networks have decreased from a peak of 1.1 billion in April 2003 to 885 million today, despite broadband use increasing significantly over that same time period. There is no mention of whether the spoofed, static-filled music files the record companies place on the networks to foil swappers are counted among the total. The IFPI claims that the decrease in illegal downloading is due to the recent legal efforts to shut down services like Grokster and Kazaa, combined with increasing availability of legal downloading services. This "carrot and stick" approach may be working, however, the issue of greed appears to be rearing its ugly green head. Clearly, the iTMS is the most significant driver of downloadable music sales. So why are the record companies trying to kill the goose that laid the golden eggs?